Pre Foreclosures

Pre Foreclosures

Definition

These are homes that are facing foreclosure but have not been repossessed. The borrower still has a chance to pay off the debt and avoid foreclosure, or sell the property.

What is a Pre-foreclosure?

Pre Foreclosure

Many people have found themselves behind on their mortgage payments in recent years as the economy and housing market have fluctuated. Homeowners may find it difficult to make their monthly mortgage payment due to issues such as job loss, medical problems or other life situations. For investors, pre-foreclosures can be a very lucrative opportunity to purchase a home from a very motivated seller.

The term pre-foreclosure simply means that the homeowner has been notified by their lender to either pay either catch up their mortgage payments or risk losing their home to foreclosure. This can be during various time frames in different states. Some states use judicial foreclosure while others use non-judicial. That means that the process length can be different from place to place. The actual time frame for pre-foreclosure can be from just a few weeks to several months in length. Some lenders are much more willing to negotiate and give the homeowner more time than others. Some will try to work out deals such as adding the past few mortgage payments on to the end of the loan, temporarily reducing payments or taking the home back in lieu of foreclosure.

How Much Time to Claim a Pre-Foreclosure?

Many homebuyers and investors wonder how much time they have to purchase a pre-foreclosure before it goes back to the bank. In most states, the average amount of time that a person has to try to sell their home before it goes to foreclosure auction is about three months. However, there is no set rule that applies to every state, so you can't count on the fact that a homeowner really has that much time. In addition, every lender works a little bit differently. Some are quite accommodating and want to help the seller get rid of the home while others seem set on making sure that the home goes to foreclosure in a timely manner. That means the seller could potentially work out a deal for someone to purchase their home, but the bank may decide that it's too close to the foreclosure date to allow that to happen.

Another point that you must remember is that most banks do not want to take the home back. It typically costs them a lot more to deal with the issues of getting the home sold after a foreclosure than it does to work with a homeowner or even allow short sale to happen. Many banks have become more lenient in recent years as the housing crisis came to a head, and the government got involved.

Steps to Claim a Pre-foreclosure

The typical process to purchase a pre-foreclosure first involves finding the right kinds of properties. As stated before, the owner typically has about 2 to 3 months to try to reinstate or sell the property before it will go to auction. For this reason, it's good to have an association with an experienced real estate agent who can find these pre-foreclosure opportunities for you. Sometimes, the homes are listed with an agent in the MLS system. Other times, the homeowner seems to be in a state of shock and doesn't list their property. In many areas, there are companies who put together pre-foreclosure lists that will allow you to approach these homeowners who haven't listed their houses.

The next thing you want to do is come up with an organizational system that will allow you to keep track of those properties that you might be interested in purchasing. This could be an Excel spreadsheet or simple index cards. The key is finding a way to track the information that you research for each home.

The next step would be checking out the market value to find out how much the property is worth. You need to go into a situation armed with all of the information available about property. That means that you need to know what comparable homes have sold for the areas so that you can evaluate how much the subject property is worth. Remember that buying a pre-foreclosure needs to be a pretty swift process if you want to close on it before it goes back to the bank. Having all this information up front is critical to your success in buying a pre-foreclosure. Not every home in pre-foreclosure is actually a good deal. Many homeowners are upside down in their mortgages right now, so you might find that a short sale is necessary in order to purchase certain properties.

The next step would be to contact the owner so that you can find out more about their situation and negotiate a purchase agreement with them. There are several things to keep in mind when negotiating with an owner. First of all, the house may need repair which means you probably want to offer them an "as is" price. Make sure to get a firm estimate of how much those repairs will cost so that you don't pay too much for the home.

If the property is "upside down", that means that the owner cannot sell it without getting the bank involved. This may mean that you want to proceed with a short sale offer asking the bank to take less than what is owed on the property. Many banks are much more willing to do that as a way of preventing the foreclosure process. You may also want to check with the owner to see if they have an assumable loan. In that case, you would have to qualify to assume their loan. Make sure to do a title search to see if there are any other liens against property such as a second mortgage or mechanic's lien.

The final step is to write up the contract and close the deal. You will need to work within the confines of real estate law in your state. Some states close using a real estate attorney while other states utilize the services of a title company. You also want to get a professional home inspection before closing just so that you understand all of the repairs that may be needed.

Where Can I Find Pre-Foreclosures?

You can find pre-foreclosures by working with a qualified agent who has access to properties that may or may not be listed. You can also check out www.ForeclosureDeals.com to get a listing of properties that are in all stages of foreclosure.

FAQ about Pre Foreclosures

  • Many lenders will reject your application for a home modification loan while you are in pre- foreclosure. If you are seeking a loan modification program, though, you can apply and usually be accepted, depending on the lender.

  • A deed in lieu of foreclosure is a sale in which you agree to walk away from the property in return for not being prosecuted by the bank for the balance owed on the loan. It is in an effort to avoid foreclosure.

  • Usually, an initial deposit of $1000.00 is expected, and confirmation of access to funds to pay off the debt on the property.

  • There are two issues that you should be aware of:

    • All of the debts on a pre-foreclosure property will remain on the property until it is sold. All the debts must be paid prior to purchasing the property.
    • Ensure you are aware of who actually holds the title to the property and that they have agreed to the sale, and that they have agreed to sign the contract of sale.

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